The downleg property, Forest Creek Apartments (a 92- unit community in Kent, Washington) had an impending loan maturity in July 2014. The ownership group was comprised of six Tenant-In-Common (TIC) owners whose investment goals were no longer aligned. The decision was made to sell rather than refinance.
The property was well located but in need of significant capital improvements, including replacement of failing polybutylene pipes. In addition, a majority of the sellers needed to find exchange properties that would meet their investment goals.
A full marketing campaign for Forest Creek was launched which included personally contacting the 300 most likely buyers for the property.
Investors Management Group, Inc. simultaneously sourced and evaluated nearly 20 potential 1031 Exchange properties, located from Portland to Seattle. An investment group headquartered in Southern California had The Orion (formerly Commencement Terrace), a 168-unit high-rise in Tacoma, Washington in contract. The company was preparing to raise joint venture equity to purchase the property. Given we had previously worked with this group, we approached the Sponsor and proposed a TIC structure that would accommodate our clients’ exchanges.
We received 10 qualified offers for Forest Creek, which closed in June 2014 at $9,100,000, or $99,000/unit. The seller’s annualized return over a 10-yr hold was 11.5%.
We worked with our clients, the lender and sponsor to ensure a timely and seamless closing on Commencement Terrace, which closed August 2014. The value-add opportunity included $2.5 million in planned upgrades, resulting in a total purchase plus capital improvement cost of $15,500,000 with a projected 5-year internal rate of return of 19.3%.